CFO Year-Over-Year Compensation Outpaces That of CEO

Despite some positive signs, the US economy remains tentative, and could be responsible for the minimal increase in CEO and CFO compensation this past year as revealed in The BDO 600 CEO and CFO Pay Study. BDO USA, LLP, a leading accounting and consulting organization, analyzed companies with annual revenues ranging from $25 million to $1 billion in eight industries.

CEO total compensation ($3,055,628) only grew by 0.7 percent this year compared to a more robust 12.6 percent last year ($3,034,366). CFOs fared slightly better with a total compensation increase of 4.9 percent this year ($1,215,957), but still down from the 8.2 percent increase they enjoyed during the same period last year ($1,158,664).

"There is clearly a sense of cautious optimism when it comes to the economy given its skittish performance, swinging between extreme peaks and valleys,” said Randy Ramirez, a senior director in the Global Employer Practice at BDO. “Because of this, CEO and CFO compensation is rising at a more measured pace when compared to last year.”

Ramirez continued, “Companies also want to capitalize on bullish market days and, as a result, are incentivizing their executives to accelerate bottom-line growth and unlock greater shareholder value. CFO compensation, in particular, is benefiting as is evident by its outpacing of CEO pay. One possible explanation is the increased responsibility placed on CFOs to leverage market momentum in order to realize a company’s financial vision.”

Pay Levels by Company Size

Pay levels within the mid-sized and largest revenue ranges either increased or remained fairly stable across both CEO and CFO pay. The smallest revenue group ($25 million to $325 million) decreased by -32 percent (CEO) and -22 percent (CFO), while last year, the smallest revenue range ($25 million to $325 million) increased by 39 percent (CEO) and 15 percent (CFO).

The decrease experienced by the smallest revenue group could be largely caused by CFO personal financial planning strategy. Companies in this revenue range experienced the largest growth in its underlying equity since 2003, creating a number of opportunities for CFOs (and other key employees) to exit equity holdings. Also, when comparing 2014 performance to 2013, it may seem like a pullback, but overall, the uptrend in compensation remains intact.

Pay Levels by Industry

Ranking as the highest paid CEOs and CFOs are those within the real estate industry, with average compensation at $4,515,764 and $1,818,693, respectively. As a result of a stable economy, low interest rates and strong demand from international investors, real estate businesses, such as REITs (real estate investment trusts) are benefitting and CEO/CFO pay is rising as a result.

Healthcare executives also experienced an uptick in pay, with CEO compensation jumping to $3,951,907, from $2,552,529 and CFO compensation moving to $1,402,621 from $1,049,741. Spurring this increase could be the pressure healthcare organizations face to retain strong executive leadership who can help them not only survive, but flourish in the new consumer-driven healthcare paradigm. To secure this type of executive talent, healthcare organizations are being forced to offer more competitive compensation packages.

While last year, energy executives were ranked as the highest paid in both the CEO and CFO categories ($5,129,630 and $1,788,635, respectively). This year the industry’s CEO compensation decreased significantly to $3,941,974 and CFO pay to $1,578,730. This change could be attributed to the substantial decline in crude oil prices which is having a notable industry impact and causing companies to cut production and costs. This year's BDO Oil and Gas RiskFactor Report finds that 99 percent of companies cite volatile oil and gas prices as a top risk.

Many industry categories saw healthy double-digit growth in CEO and CFO salaries over last year. Notable exceptions are the energy, non-banking financial services and real estate industries.

For both CEOs and CFOs, when it comes to change in total direct compensation, energy is at the bottom of all industries surveyed, dropping to -23 percent from 45 percent and to -12 percent from 21 percent, respectively over last year's percentage growth.

Compensation Mix

Overall cash versus equity levels remained unchanged from last year. This year, the CEO pay mix was 41 percent cash and 59 percent equity, while last year it was 40 percent cash and 60 percent equity. This year, CFO pay mix was 48 percent cash and 52 percent equity — exactly the same as last year.

When evaluated by company size, cash versus equity remained fairly split in regards to CEO compensation. However, there is a significant divide between cash and equity for CFO compensation at the largest revenue range. This could be attributed to larger companies historically relying on equity compensation to create opportunities for executives to accrete wealth, while being able to offer less cash in return for the opportunity.

About The BDO 600 CEO and CFO Pay Study

These findings are from the fifth edition of The BDO 600 CEO and CFO Pay Study, which examines CEO and CFO compensation trends in publicly-traded companies with annual revenues ranging from $25 million to $1 billion in the energy, healthcare, manufacturing, real estate, retail and technology industries; and publicly-traded companies with assets ranging from $50 million to $2 billion in the banking and financial services industries. The study includes proxy statements that were filed between May 15, 2014 and May 15, 2015.

*Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm's individual needs.

About BDO USA

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